Question

3 LUHELIEU UIE TUIIUNITY PILE GITU LUDI LIIGI OLIEHSULD. $ Sales price Variable costs Fixed costs 14 per unit 2 per unit 48,000 per month 2 of 2 mts eBook Assume that the company plans to sell 6,000 units per month. Consider requirements (6), (q), and (independently of each oth Required: a. What will be the operating profit? b. What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 40 percent? c. What is the impact on operating profit if variable costs per unit decrease by 20 percent? Increase by 40 percent? d. Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 20 percent highert projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much? Print References Complete this question by entering your answers in the tabs below. Required A Required B Required Required D Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 20 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much? Operating profit increases by S 7,200

Answer 1

a) Sales (A) = $84000 ($14*6000)

Variable cost (B) = $12000 ($2*6000)

Fixed cost (C) = $48000

So operating profit (A-B-C) = $24000

b)if sales price decreases by 20%

new sales price = 80% of $14 = $11.2

Sales (A) = $67200 ($11.2*6000)

Variable cost (B) = $12000 ($2*6000)

Fixed cost (C) = $48000

So operating profit (A-B-C) = $7200

Impact on operating profit is decreased by $16800

If sale price increased by 40%

new sales price = 140% of $14 = $19.6

Sales (A) = $117600 ($19.6*6000)

Variable cost (B) = $12000 ($2*6000)

Fixed cost (C) = $48000

So operating profit (A-B-C) = $57600

Impact on operating profit is increased  by $33600

c)if variable cost per unit decreased by 20%

new variable cost per unit = 80%of $2 = $1.6

Sales (A) = $84000 ($14*6000)

Variable cost (B) = $9600 ($1.6*6000)

Fixed cost (C) = $48000

So operating profit (A-B-C) = $26400

Impact on operating profit is increased  by $2400

if variable cost per unit increased by 40%

new variable cost per unit = 140%of $2 = $2.8

Sales (A) = $84000 ($14*6000)

Variable cost (B) = $16800 ($2.8*6000)

Fixed cost (C) = $48000

So operating profit (A-B-C) = $19200

Impact on operating profit is decreased  by $4800

d)If fixed cost is 20% lower and variable cost is 20% higher

new fixed cost = 80% of $48000 = $38400

new variable cost per unit = 120% of $2 = $2.4

Sales (A) = $84000 ($14*6000)

Variable cost (B) = $14400 ($2.4*6000)

Fixed cost (C) = $38400

So operating profit (A-B-C) = $31200

Impact on operating profit is increased  by $7200

Hence solved

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